Question 1

The present value of $4,000 to be received three years from now and earning a 12 percent return (rounded) is

Accepted Answer

A) $2,848. 
B) $2,520. 
C) $4,880. 
D) $5,440. 
A) $2,848. 
B) $2,520. 
C) $4,880. 
D) $5,440.

Question 2

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

Accepted Answer

A) $718,200 
B) $1,400,000 
C) $973,600 
D) $200,000 
A) $718,200 
B) $1,400,000 
C) $973,600 
D) $200,000

Question 3

A firm is considering a project with an annual cash flow of $80,000. The project would have a 10-year life, and the company uses a discount rate of 8 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Accepted Answer

A) $800,000 
B) $536,800 
C) $406,420 
D) $727,208 
A) $800,000 
B) $536,800 
C) $406,420 
D) $727,208

Question 4

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: $$\begin{array} { c c r } 
\text { Year } &  \text { Original Investment } & \text { Cash Flow } \
{ 0 } & \$ 200,000 \
1 & &\$ 40,000 \
2 & & 40,000 \
3 & & 60,000 \
4 & & 40,000 \
5 & & 60,000 \
6 & & 30,000
\end{array}$$ What is the payback period in years, assuming no taxes are paid?

Accepted Answer

A) 4.33 
B) 4.00 
C) 5.00 
D) 3.85 
A) 4.33 
B) 4.00 
C) 5.00 
D) 3.85

Question 5

The internal rate of return (IRR) is the most widely used capital investment technique because it's an easily understood concept.

Accepted Answer

A) True 
 B)False

Question 6

Bellamy Company is considering the purchase of a computerized manufacturing system. The after-tax cash benefits/savings associated with the system are as follows: $$\begin{array} { l r } 
\text { Decreased waste } & \$ 300,000 \
\text { Increased quality } & 400,000 \
\text { Decrease in operating costs } & 600,000 \
\text { Increase in on-time deliveries } & 200,000
\end{array}$$ The system will cost $9,000,000 and will last ten years. The company's cost of capital is 12 percent. What is the NPV for the computerized manufacturing system?

Accepted Answer

A) ($525,000) 
B) ($5,610,000) 
C) $8,475,000 
D) $9,000,000 
A) ($525,000) 
B) ($5,610,000) 
C) $8,475,000 
D) $9,000,000

Question 7

Laramie Corporation is considering an investment in equipment for $20,000. Laramie uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $10,000 per year. The cost of capital is 20 percent. What is the net present value of the investment?

Accepted Answer

A) $(1,366) 
B) $2,732 
C) $22,991 
D) $22,000 
A) $(1,366) 
B) $2,732 
C) $22,991 
D) $22,000

Question 8

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Accepted Answer

A) payback period 
B) accounting rate of return 
C) IRR 
D) NPV 
A) payback period 
B) accounting rate of return 
C) IRR 
D) NPV

Question 10

Explain what a capital investment decision is. In your answer, distinguish between independent and mutually exclusive capital investment decisions.

Accepted Answer

Capital investment decisions are concern

Question 11

Melancholy Company is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 12 percent. The company uses the straight-line method of depreciation with no mid-year convention. There are no income taxes. The payback period in years for the project is

Accepted Answer

A) 3.20 years. 
B) 3.25 years. 
C) 2.90 years. 
D) 4.20 years. 
A) 3.20 years. 
B) 3.25 years. 
C) 2.90 years. 
D) 4.20 years.

Question 12

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

Accepted Answer

A) $11,120. 
B) $9,948. 
C) $9,822. 
D) $9,200. 
A) $11,120. 
B) $9,948. 
C) $9,822. 
D) $9,200.

Question 13

NPV reveals the wealth-maximization of a project more consistently than IRR.

Accepted Answer

A) True 
 B)False

Question 14

Macadamia Company is considering an investment in equipment for $55,000. Chocolate uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $30,000 per year. What is the annual cash flow for Year 1?

Accepted Answer

A) $33,000 
B) $18,000 
C) $22,000 
D) $22,400 
A) $33,000 
B) $18,000 
C) $22,000 
D) $22,400

Question 15

Linda's Graphic Designs is considering the purchase of a used color Laser Printer costing $38,400. The Printer would generate an annual cash flow of $16,000 for three years. At the end of three years, the Printer would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation with no mid-year convention. What is the internal rate of return to the nearest percent for the Printer, assuming no taxes are paid?

Accepted Answer

A) 8% 
B) 10% 
C) 12% 
D) 42% 
A) 8% 
B) 10% 
C) 12% 
D) 42%

Question 16

The internal rate of return (IRR) is the interest rate that sets the present value of cash inflows of a project equal to the present value of a project's cost.

Accepted Answer

A) True 
 B)False

Question 17

Accelerated methods of __________ are preferred because of the tax benefits created.

Accepted Answer

The answer of Accelerated methods of __________ are preferred because...

Question 18

Jacuzzi Corporation is considering an investment in equipment for $25,000. Data related to the investment are as follows: $$\begin{array}{l}\begin{array} { c c } 
&\text { Cash Flow before }\

\text { Year } & \text { Depreciation and Taxes } \
1 & \$ 12,500 \
2 & 12,500 \
3 & 12,500 \
4 & 12,500
\end{array}
\end{array}$$ Jacuzzi uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is four years with no salvage value. Cost of capital is 12 percent. What is the net present value of the investment?

Accepted Answer

A) $5,370 
B) $(2,222) 
C) $12,962 
D) $30,370 
A) $5,370 
B) $(2,222) 
C) $12,962 
D) $30,370

Question 19

Evaristo Corporation is considering an investment in equipment for $45,000. Data related to the investment are as follows: $$\begin{array}{l}\begin{array} { c c } 
&\text { Cash Flow before }\

\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & \$ 30,000 \
2 & 30,000 \
3 & 30,000 \
4 & 30,000 \
5 & 30,000
\end{array}
\end{array}$$ Cost of capital is 18 percent. Evaristo uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. What is the payback period in years approximated to two decimal points?

Accepted Answer

A) 1.00 
B) 0.67 
C) 1.50 
D) 2.08 
A) 1.00 
B) 0.67 
C) 1.50 
D) 2.08

Question 20

Which of the following is true about a positive net present value?

Accepted Answer

A) It measures the increase in the value of a firm resulting from an investment. 
B) It measures the rate at which the discount rate has decreased. 
C) It indicates that an investment is not profitable and hence should be rejected. 
D) It indicates that the cost of capital is less than the hurdle rate. 
A) It measures the increase in the value of a firm resulting from an investment. 
B) It measures the rate at which the discount rate has decreased. 
C) It indicates that an investment is not profitable and hence should be rejected. 
D) It indicates that the cost of capital is less than the hurdle rate.

The present value of $4,000 to be received three years from now and earning a 12 percent return (rounded) is

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

A firm is considering a project with an annual cash flow of $80,000. The project would have a 10-year life, and the company uses a discount rate of 8 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: Year Original Investment Cash Flow 0 \ 200,000 1 \ 40,000 2 40,000 3 60,000 4 40,000 5 60,000 6 30,000 What is the payback period in years, assuming no taxes are paid?

The internal rate of return (IRR) is the most widely used capital investment technique because it's an easily understood concept.

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Explain what a capital investment decision is. In your answer, distinguish between independent and mutually exclusive capital investment decisions.

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

NPV reveals the wealth-maximization of a project more consistently than IRR.

The internal rate of return (IRR) is the interest rate that sets the present value of cash inflows of a project equal to the present value of a project's cost.

Accelerated methods of __________ are preferred because of the tax benefits created.

Which of the following is true about a positive net present value?

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 19: Capital Investment

The present value of $4,000 to be received three years from now and earning a 12 percent return (rounded) is

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: Year Original Investment Cash Flow 0 \ 200,000 1 \ 40,000 2 40,000 3 60,000 4 40,000 5 60,000 6 30,000 What is the payback period in years, assuming no taxes are paid?

The internal rate of return (IRR) is the most widely used capital investment technique because it's an easily understood concept.

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Explain what a capital investment decision is. In your answer, distinguish between independent and mutually exclusive capital investment decisions.

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

NPV reveals the wealth-maximization of a project more consistently than IRR.

The internal rate of return (IRR) is the interest rate that sets the present value of cash inflows of a project equal to the present value of a project's cost.

Accelerated methods of __________ are preferred because of the tax benefits created.

Which of the following is true about a positive net present value?

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters